Doing the debt dance

Theatrics aside, what counts is how much we borrow

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Kabuki -- in which each step and gesture is a ritual familiar to the audience -- entered our political vocabulary in 1961, during prolonged negotiations with Japan over a mutual defense treaty.

The steps and gestures in the debt ceiling "kabuki dance" are the same whether the president is a Republican or a Democrat. When the president asks for an increase, the opposition party scolds him for poor fiscal management.

"Washington is shifting the burden of bad choices onto the backs of our children and grandchildren," said Sen. Barack Obama, D-Ill., when President George W. Bush sought a debt limit increase in 2006.

Lawmakers who approve the spending that make it necessary to raise the debt ceiling vote against raising the debt ceiling so they'll have a "fiscally responsible" vote to show constituents.

A general ceiling on the debt was first established in 1917. Before then the Treasury department had to get permission from Congress each time it wanted to issue a bond.

Congress has never refused to raise the debt ceiling, but began attaching strings in 1953, when Sen. Harry Byrd, D-Va, demanded spending cuts in return for letting President Dwight Eisenhower borrow to build the interstate highway system.

Republican presidents asked for 49 of the 78 debt-limit hikes since 1960. When a Democratic president seeks one, the news media are filled with alarms that Republicans in Congress are "holding America hostage" or "flirting with default" if they try to couple it with spending restraint.

I could find no record of journalists saying such things when Democrats have opposed debt-ceiling increases requested by Republican presidents.

Default would be bad. It would be worse if a giant meteor struck the Earth, yet there is no media furor over meteor strikes. The odds a debt ceiling dispute would trigger default may be more remote than a meteor strike, because each day tax revenues are at least five times more than what's needed to service the debt.

The government borrows 46 cents for each dollar it spends, so there would have to be very big, very painful cuts in popular programs if the debt ceiling weren't raised. That's anathema to politicians in both parties, so a hike in the debt ceiling is a foregone conclusion. What's in dispute is how much higher, and under what conditions.

When Sen. Obama voted against raising the debt ceiling in 2006, the national debt was $8.2 trillion. It's now $16.7 trillion.

Phony scare talk about default obscures the critical question: For how much longer can we run mammoth deficits before calamity strikes?

Their study of 44 countries over 200 years indicates a "tipping point" is reached when debt held by the public exceeds 90 percent of the gross domestic product, wrote economists Carmen Reinhart and Kenneth Rogoff in 2010. The "tipping point" actually is 80 percent of GDP, four prominent economists said in a paper in February.

Our debt now exceeds 105 percent of GDP. But the government owes $4.6 trillion to itself. So our public debt to GDP ratio is "just" 73 percent.

Social Security ($2.72 trillion) holds the most intragovernmental debt. What you pay in Social Security tax is spent right away. What goes into the Social Security Trust Fund are IOUs from the Treasury. In theory, they're redeemable for cash. But there is no cash.

The Federal Reserve ($2 trillion) buys Treasury paper to keep interest rates low and, these days, because hardly anyone else is buying it. The Fed may account for 75 percent of all bond purchases this year.

Each time the Fed buys a Treasury bond, the money supply is increased. Nearly always before, the end result of so vast an expansion in so short a time has been rampant inflation.

With interest rates at their lowest in half a century, we spent $223 billion in fiscal year 2013 to service the debt. If interest rates rose to the normal average of 5 percent, it would cost about three times that much to service existing debt, to which by the end of his term President Obama plans to add about $1.58 trillion more. We'd be spending more then for debt service than for all federal discretionary programs combined, save defense.

Interest rates will go up if our credit rating goes down. Disputes over the debt ceiling make bond rating agencies nervous, but the size of our deficits makes them more nervous. If there's another downgrade, it won't be because of the "kabuki dance."